Building trade faces double dip next year

The recent bounce back in the building trade has slipped sharply, according to the latest survey of the sector by the Chartered Institute for Purchasing and Supply.

The Cips/Markit poll showed that overall levels of confidence and activity fell from a reading of 58.4 in June to 54.1 in July, the sharpest fall since February last year. Although the series still suggests expansion over the next six months to a year, the marked slowdown also indicates that the recent revival will not be sustained. What seems to have driven the index lower is a collapse in confidence about prospects. Business expectations have slumped from a poll reading of over 75 a year ago to 56.7 now.

Much of this recent loss of confidence can be attributed to the impact of the emergency Budget on 22 June, with its gloomy outlook for public spending on infrastructure and building. After a series of statements by the Education Secretary, Michael Gove, some reports suggests that some 700 individual building and repair projects will be canned. What little funding is available for social housing and road building is also likely to be squeezed by cuts of up to 40 per cent in "non-protected" departments.

Although the Chancellor, George Osborne, said in his Budget that there would be no significant reductions in capital spending on top of the last Labour government's extensive plans for cuts, many believe he may have to revisit that pledge to deliver his goals for repairing the public finances.

The Cips surveys showed that there was slower expansion in July in housebuilding and commercial activity, while civil engineering only grew marginally. The outlook for employment also darkened.

Sarah Ledger, an economist at Markit, said: "Perhaps more concerning was the continued impact on confidence that impending public sector spending cuts and the scheduled VAT rise have had. This was highlighted by the solid reduction in employment indicated during the month, as construction companies continue to review costs carefully."

Although only 6 per cent of the economy, the sector's volatility has driven relatively large swings in overall growth. The news follows a disappointing slippage in the Cips manufacturing survey. Today's survey of the services sector – about 70 per cent of GDP – is keenly awaited.